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LGC says it will make restitution without more charges

By TIM BUCKLANDNew Hampshire Union Leader

CONCORD - New Hampshire Local Government Center officials maintain they will not charge member communities of its workers' compensation pool to satisfy a $17.1 million state order, despite the discovery of previous legal opinions saying LGC could assess the pool's members to satisfy its obligations.

"That would not be my intention," interim Executive Director George Bald said of charging towns, cities and school districts in its workers' compensation program the $17.1 million that the state Bureau of Securities Regulation has ordered repaid to members of LGC's health insurance program, which is called HealthTrust.

For more than a decade, LGC subsidized its workers' compensation program, which had net losses of as much as $4 million annually since its inception in 2000, with money from its other entities, including its health insurance program.

LGC officials have cited opinions from LGC in-house attorney David Frydman that said member towns and cities are not on the hook because the BSR order specifies that the Property and Liability Trust - the parent organization of the workers' compensation program - repay the money.

Frydman said a state law, RSA 5-b, indemnifies participating communities against "any liability to any third party for the acts or omissions of the pooled risk management program."

However, in early 2007, when LGC was in the process of merging its Workers' Compensation Trust program into its Property and Liability Trust program, then-corporate counsel Mark McCue told LGC that the workers' compensation program's ability to assess members to satisfy costs "would run to the benefit of (Property and Liability Trust) upon completion of the merger. There is no prohibition on the assignment of such assessment right by (Workers Compensation Trust) to (Property and Liability Trust)."

Also, the LGC workers' compensation member agreement says LGC "shall be entitled to assess the applicable Participants of the Workers' Compensation Plan and/or Unemployment Compensation Plan the amounts necessary to indemnify such other Plan, (Property and Liability Trust) or LGC."

David Lang, the president of the Professional Fire Fighters of New Hampshire, who led a decade-long push to force more transparency from LGC, said he believes the apparently conflicting pieces of legal advice are examples of LGC trying to use different laws to justify moves to prop up its money-losing workers' compensation program and prevent municipalities from severing their relationship with the insurance provider.

"They're trying to have it both ways," Lang said of LGC. "They really need to follow the law."

Bald said LGC made numerous mistakes in the past, including subsidizing some of its programs and failing to be transparent.

"I apologize for them," he said. "But we're back on track and doing the right things to provide a good service to communities."

The New Hampshire Union Leader asked Bald to reconcile what seemed to be contradictory legal advice. He provided the Union Leader with a copy of a responding memo written Friday by Frydman, in which the attorney said the two legal opinions do not conflict because McCue's was specific to the merger and Frydman's was specific to the BSR order.

Frydman said that, because Property and Liability Trust, and not specifically workers' compensation, has been ordered to repay the money, RSA 5-b "provides statutory protection to the members against having to pay this liability directly." Lang said he believes another state law is why towns and cities participating in the workers' compensation program should be assessed to repay towns and cities in the health insurance pool.

That law, RSA 281-a, says, "the legislative body shall appropriate sufficient funds to create a financial reserve until all outstanding claims are disposed of. If additional funds are needed to increase the loss fund in any given year, the legislative body shall appropriate such funds as are necessary."

The BSR order was given, in part, because the members of the workers' compensation program do not match the other programs, meaning taxpayers from certain communities were subsidizing taxpayers from other communities. LGC, which has appealed the order to the state Supreme Court, has ceased transferring money from its health insurance program, but continues to subsidize workers' compensation from its property and liability risk pool. Lang said LGC failed to follow the law for years because it did not collect money from workers' compensation members to meet the program's costs.

"The law is clear. The facts are clear," Lang said. "The only thing that isn't clear is why LGC won't do the right thing and pay the money back to HealthTrust members."

In his memo, Frydman said "the provisions of 281-A do not apply to this scenario. As further support for this conclusion, the BSR does not have jurisdiction over the Workers Compensation Program and as such, RSA 281-A does not apply to the Order."

Lang said he believed that there is an underlying reason LGC won't assess the workers' compensation members - that LGC does not want to risk members leaving LGC out of anger at being assessed to satisfy the BSR order.

"At the end of the day, it's not about doing the right thing," he said. "It's about maintaining all the communities under their one roof.

"This is one more time that the Professional Fire Fighters of New Hampshire are saying that the LGC and its attorneys are throwing up a smokescreen," he said.

"This interpretation Mister Lang has is his interpretation," Bald said. "I don't get my legal advice from Mister Lang. It's only his thoughts on this."

The $17.1 million order is in addition to $36 million the state ordered LGC to repay members from the health insurance and property and liability pools from surpluses that the state deemed were in excess of what is allowed. The other programs have cash reserves to cover the orders. The workers' compensation program, which has lost money annually since it was formed in 2000, has no reserves.

LGC officials have said the workers' compensation program could collapse if the BSR order is upheld, but that any existing obligations would be covered under a security guaranty of $11.4 million maintained with the Department of Labor. Bald he has identified some possible avenues for how to meet the obligation without assessing members of the workers' compensation program. He declined to specify them, saying he hasn't yet presented the ideas to the Property and Liability board of directors.